The Effect of Public Debt on Growth in Multiple Regimes

19 Pages Posted: 4 Jul 2012 Last revised: 16 Dec 2013

See all articles by Andros Kourtellos

Andros Kourtellos

University of Cyprus - Department of Economics; University of Bologna - Rimini Center for Economic Analysis (RCEA)

Thanasis Stengos

University of Guelph - Department of Economics

Chih Ming Tan

University of North Dakota - College of Business & Public Administration - Department of Economics

Date Written: August 24, 2013

Abstract

We employ a structural threshold regression methodology to investigate the heterogeneous effects of debt on growth using public debt as a threshold variable as well as several other plausible variables. Our methodology allows us to address three sources of model uncertainty that characterize cross-country growth data: parameter heterogeneity, theory uncertainty, and endogeneity. We find strong evidence for threshold effects based on democracy, which implies that higher public debt results in lower growth for countries in the Low-Democracy regime. Our results are consistent with the presence of parameter heterogeneity in the cross-country growth process due to fundamental determinants of economic growth proposed by the new growth theories.

Keywords: parameter heterogeneity, public debt, debt threshold, threshold regression

JEL Classification: C59, O40, Z12

Suggested Citation

Kourtellos, Andros and Stengos, Thanasis and Tan, Chih Ming, The Effect of Public Debt on Growth in Multiple Regimes (August 24, 2013). Journal of Macroeconomics, Vol. 38, 2013, Available at SSRN: https://ssrn.com/abstract=2099957 or http://dx.doi.org/10.2139/ssrn.2099957

Andros Kourtellos

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Thanasis Stengos

University of Guelph - Department of Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

Chih Ming Tan (Contact Author)

University of North Dakota - College of Business & Public Administration - Department of Economics ( email )

293 Centennial Drive Stop 8369
Grand Forks, ND 58202-8369
United States

HOME PAGE: http://sites.google.com/site/chihmingtan/home

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